M&A surge looms for specialist lenders as majority plan exit within five years

This includes more than one-in-10 within the next two years, amid calls for market consolidation as shareholders look to realise their investments.

The ‘Interpath Specialist Lender Survey’ was conducted in collaboration with JP Morgan and canvassed the views of more than 100 specialist lenders in a survey running to February 2025.

The report found that more than 90% of specialist lenders are aiming to renew, amend, or increase their debt facilities within the next two years.

More than one-quarter of contributors to the study said they didn’t have sufficient equity funding for the same period.

Founder-led businesses remain a dominant force in the specialist lending sector and are present in the capital stack of 80% of the lenders surveyed.

Although 63% of respondents identified macro-economic stress as one of their top three challenges in 2024, this fell to 23% when asked about 2025.

Instead, increased competition has emerged as the greatest challenge, according to one-quarter of sector leaders.

Stuart Mogg, managing director and head of financial services capital and debt advisory at Interpath, said: “The specialist lending sector has achieved remarkable success in recent years fuelled by the growth of capital solutions.

“As loan books grow, there is a rush to secure capital that can fuel that business amid an increasingly competitive market.

“Lenders are capitalising on lower margins, reduced fees, and greater flexibility, as well as offers from some funders for additional financing for non-performing loans, which makes an attractive proposition that enhances liquidity and risk management for lenders.

“The substantial demand to refinance and take on new facilities, as well as the need for equity, also reflects the importance of maintaining a flexible and resilient capital structure through a diverse capital stack.”

Nick Parkhouse, managing director and head of financial services deal advisory at Interpath, said: “The findings of our survey paint a picture of a sector in transition.

“Founders, management teams, and HNW individuals are deeply entrenched in the funding structures of specialist lenders, representing the strong alignment between leadership and capital in order to drive growth.

“However, there is a clear signal that M&A activity will start ramping up in the coming years and we have already started to see green shoots appear with an increase in interest from buyers.

“Institutional investors and private equity will have an important role in funding models as consolidation rises the agenda in what is a fragmented market.”

Stuart added: “Clearly competition is on the minds of industry leaders, and it is starting to eclipse the ongoing concerns over economic turbulence. 

“Lenders need to have the capacity to pivot in their capital strategies, such as using public markets when they are open and economical to do so.

“However, this can’t be the only capital source and businesses in the sector need to be ready to embrace new ideas and structures when presented.’’

Rob Tanna-Smith, managing director and co-head of northern Europe ABS at JP Morgan, said: “One of the themes evident in the data is that strong and trusted institutional funding relationships remain key to specialist lenders, ensuring smoother negotiations, flexibility in amendments to the facility, and long-term collaboration.

“In our view, this signals that the specialist lenders and institutional funders who have invested in forging strong long-term relationships will be well-positioned to outperform others who take a more transactional approach during times of increased market turbulence and uncertainty.”

Ben Tucker, securitised products group sales at JP Morgan, added: “The specialist lending sector is at a pivotal moment, with both challenges and opportunities on the immediate horizon.

“With over one-quarter of lenders needing to raise equity and nearly all respondents looking to raise or refinance debt in the next two years, capital providers are poised for a bustling period ahead.”